Editorial: California biased against out-of-state gas?

A three-judge panel of the U.S. 9th Circuit Court of Appeals was to hear arguments today in San Francisco in a legal challenge to a California regulation that imposes a low-carbon standard for transportation fuels within the state.

The first-in-the-nation regulation, an offshoot of Assembly Bill 32, the state's 2006 global warming law, was ruled unconstitutional last year by U.S. District Court Judge Lawrence O'Neill, in a case brought by farming, oil and transportation industry groups against the California Air Resources Board.

Judge O'Neill held that the state requirement runs foul of the Constitution's Commerce Clause because it "discriminates against out-of-state and foreign crude oil while giving an economic advantage to in-state crude oil."

He also ruled that the state's low-carbon fuel standard similarly "discriminates against out-of-state corn-derived ethanol" and "impermissibly regulates extraterritorial conduct."

The Fresno-based judge issued an injunction preventing the state from enforcing its fuel requirement, which the 9th Circuit subsequently lifted.

So now the federal appeals court will decide whether California is allowed to impose its fuel standards on fuel producers not only in the Golden State, but also producers in the other 49 states that export fuel to California.

CARB Executive Officer James Goldstene, the named defendant in the high-stakes lawsuit, stated this past spring that the state's low-carbon fuel standard not only reduces greenhouses gas emissions, it also "drives investment and innovation, creates new jobs and provides the next generation of clean fuels to all Californians."

But even some of those who, like Mr. Goldstene, want to see a reduction in carbon emissions in California and the emergence of the next generation of clean fuels within the state, have misgivings about CARB's fuel requirement.

That includes Bob Dinneen, CEO of the Renewable Fuel Association, and Tom Buis, chief executive of Growth Energy, which represents ethanol producers.

They issued a joint statement following Judge O'Neill's ruling against CARB: "The state of California overreached in creating its low-carbon fuel standard and making unconstitutionally punitive for farmers and ethanol producers outside the state's borders."

Indeed, when determining whether a fuel produced out of state complies with California's low-carbon standard, state regulators factor in the life-cycle greenhouse gas emissions of the out-of-state fuel, including emissions produced during production and transportation to California.

What that means is that a fuel produced outside California, that is chemically indistinguishable from fuel produced in California, will nonetheless run afoul of the state's low-carbon fuel standard because CARB assigns it a higher "carbon intensity" score for being trucked in from out of state.

So the issue before the three-judge panel hearing the challenge to CARB's low-carbon fuel standard really is not about greenhouse gas emissions or clean fuels. It's about free and unfettered interstate commerce.

States are always tempted to protect their indigenous industries from out-of-state competition. And they can always come up with some seemingly reasonable justification for imposition of regulations, standards or policies that ultimately result in discrimination against out-of-state businesses.

With so many industries that lead the nation in interstate commerce – including film, wine, computers, and agriculture – California should be the champion of unrestricted trade among states.

For it is hard to complain about the market barriers facing California businesses in other states, when California itself continues to impose barriers of its own, like the low-carbon fuel standard.

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